Mortgage rate war wages

A new war is under way in Britain as banks slash their mortgage rates. The last month alone has seen a drastic fall in prices of £1,700. 

New deals have been offered by Britain's largest banks since the start of 2015 offering borrowers lower rates and reduced fees. First Direct announced Friday that it would allow home owners to lock into a fixed rate of 2.89 per cent for 10 years - the lowest offered for quite some time. This follows similar offers from banks such as HSBC and Barclays.

Families who take the opportunity to re-mortgage could save as much as £1,690 over the next five years on a £200,000 loan. Fierce competition has forced banks to engage in a price war in order to win over custom in light of indications from the Bank of England to keep interest rates low.

Brokers are suggesting that prices may fall even lower, with predictions of deals below the two per cent mark for five year deals, and as low as one per cent for two year rates.

Mark Harris, of broker SPF Private Clients said: "Lenders are keen to advance more money this year and they're cutting their prices to attract customers. Banks will hope to make money by selling customers other products such as current accounts and credit cards."

Another broker, Aaron Strutt, of Trinity Financial said: "For fixed rates to go below 1 per cent would be extraordinary, but that now looks likely to happen very soon."

Other notable deals this year include a two year fixed rate from HSBC of 1.19 per cent for customers with a 40 per cent deposit, down from a previous offer of 1.29 per cent.

With an 80 per cent deposit, the cheapest two year rate has dropped from 1.98 per cent to 1.79 per cent, offered by Marsden Building Society in a decision to undercut the Post Office.

The most significant savings can be found for those with a 10 per cent deposit. Just one month ago borrowers could get a five year loan from Skipton Building Society for 3.99 per cent with a £1,055 fee. Today, the cheapest five year rate is from Norwich & Peterborough at 3.84 per cent with a £1,285 fee.

Figures from London & County show that every type of borrower taking a mortgage today will be better off than in January.

The Bank of England voted on Thursday to keep interest rates at 0.5 per cent for the 71st successive month. Economists have said that falling inflation had reduced the urgency for hikes in the rate.